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Medtronic Stock Trading at a Discount Before Q2 Earnings: Time to Buy?
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Medtronic plc (MDT - Free Report) is scheduled to report second-quarter fiscal 2025 results on Nov. 19, before the opening bell.
In the last reported quarter, the company’s adjusted earnings of $1.23 exceeded the Zacks Consensus Estimate by 2.5%. Medtronic beat estimates in each of the trailing four quarters, the average surprise being 3.07%.
The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $8.26 billion, suggesting growth of 3.5% year over year. The consensus estimate for second-quarter earnings is pegged at $1.24 per share, indicating a 0.8% decline on a year-over-year basis.
Q2 Estimates for MDT Move South in 3 Months
Earnings estimates for Medtronic have dropped 11.1% to $1.24 per share for the fiscal second quarter over the past 90 days.
Despite the company registering earnings beat over the trailing four quarters, estimates have been southbound, reflecting the global geopolitical pressure through the months of the fiscal second quarter, primarily due to the tension around the Middle East, with a rise in oil prices during that time. This apart, the company’s recent voluntary recall, notifying Medtronic MiniMed 600 series or 700 series insulin pump users of potential risks of shortened pump battery life, added to investors’ concerns.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Let’s look at how things have shaped up for Medtronic before the announcement.
Factors to Focus on Ahead of MDT's Q2 Earnings
Since the past several quarters, Medtronic’s earnings growth has been held back by headwinds like cost escalation and currency impacts. Although inflation stabilized a bit during the fiscal first quarter, it is still higher than the historical trend. The continued rise in raw material and labor costs, as well as oil price volatility, has been denting the company’s profit. Further, a rising interest rate leading to increasing borrowing costs is concerning. In the first quarter of fiscal 2025, the company-adjusted gross margin was down 50 basis points due to an 80-basis point adverse impact of currency. Company-adjusted operating margin also declined 40 basis points year over year due to supply issues and labor shortages.
Like its peers, the impact of the present geopolitical situation, including sanctions and other measures being imposed in response to the Russia-Ukraine conflict, as well as the battle around the Red Sea may have curbed fiscal second-quarter profits too.
Added to this, unfavorable currency movements are once again likely to have acted as a major dampener during the fiscal second quarter, as in the case of other important MedTech players too. Medtronic expects its fiscal 2025 second-quarter revenues to reflect an unfavorable impact of $10 million to $60 million from currency translation.
Further, the earlier-mentioned product recall within the Diabetes business too might have partly impacted sales in the fiscal second quarter.
Despite these challenges, Medtronic has consistently showcased the resilience of its underlying business fundamentals, delivering mid-single-digit organic revenue growth for several quarters in a row. While its recent product launches have been driving growth across multiple businesses, a swift pace of several compelling product approvals promises consistent growth in the years to come.
Particularly, the company’s AFib, Structural Heart, robotics, neuromodulation, hypertension and diabetes businesses are expected to have registered growth in the to-be-reported quarter, banking on several new product launches. Within the company’s Established Market Leaders category, the company might have witnessed growth in the Cranial & Spinal Technologies segment on the increasing adoption of AiBLE, Medtronic’s spine technology ecosystem. Further, Mazor Robotics, StealthStation navigation, O-arm Imaging and Midas Rex powered surgical instruments are expected to have witnessed growth.
In Cardiac Pacing Therapies, the Micra leadless pacemaker franchise is expected to have recorded strong growth, driven by the adoption of its latest generation, Micra AV2 and VR2. In Defibrillation Solutions, the Aurora EV-ICD’s adoption is expected to have remained strong in the fiscal second quarter.
The Zacks Consensus Estimate for MDT’s overall Cardiovascular business revenues in the second quarter of fiscal 2025 indicates a 4.1% year-over-year improvement.
Among the company’s Synergistic businesses, Medtronic is expected to report strong growth within Neuromodulation segment. Pelvic Health, Coronary and Peripheral Vascular too are expected to have registered growth in the second quarter.
Among Medtronic’s Highest Growth Markets businesses, the company is likely to have gained traction within the Cardiac Ablation Solutions arm, driven by the strong sales of Pulse Field ablation products, which are more than offsetting declines in the cryo product line.
Medtronic’s Diabetes unit recorded strong growth in the United States in the fiscal first quarter, with the global adoption of the MiniMed 780G AID system driving performance. Despite issues related to battery life of MiniMed 600 and 700 series, the company might have witnessed a positive top-line contribution in the fiscal second quarter from this business.
The Zacks Consensus Estimate for MDT’s Diabetes arm revenues indicates an improvement of 7.5% year over year in the second quarter of fiscal 2025.
What Does Our Model Say?
Our proven model does not conclusively predict an earnings beat for Medtronic this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that’s not the case here.
MDT has an Earnings ESP of 0.00% and carries a Zacks Rank of 3 currently. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Bigger Picture
In recent years, the company has made some foundational changes to the organization, including streamlining the operating model, improving global operations, supply chain and quality, and bringing in expertise from outside the industry. It is actively allocating capital to fast-growth MedTech markets and fueling innovative technologies in areas like robotics, AI and closed-loop systems that ensure its growth over the next decade.
Medtronic’s revenues have improved and become more durable from implementing a performance-driven culture and changing incentives underlying the new product approvals in major markets. With top priority placed on restoring the company’s earnings power, these actions are expected to eventually result in better-leveraged earnings growth through margin stabilization and improvement.
Medtronic’s highest growth opportunities, comprising 20% of its revenues, are in markets that are large and growing faster than the overall company. For example, in Cardiac Ablation, it has significantly invested in the Electrophysiology arm to expand its share in the attractive $8 billion-plus market.
MDT's Impressive Liquidity and Solvency Position
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $27.87 billion as of July 26, 2024. The company’s cash and cash equivalents were $7.8 billion at the end of the first quarter of fiscal 2025.
Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.55 billion remains lower than the short-term cash level. The company’s times interest earned ratio is also at an impressive level of 7.7, indicating that Medtronic is well capable of paying the interest on its business debts on time.
Medtronic Shares Outperform Industry and S&P
In the fiscal second quarter, Medtronic stock gained 15.2% compared with the industry’s 8.9% growth and the S&P 500’s rise of 6.2%. The company also outperformed its direct peers like Abbott’s (ABT - Free Report) 8.5% rise and Boston Scientific’s (BSX - Free Report) 13% rise during this time span.
Fiscal Q2 Price Comparison
Image Source: Zacks Investment Research
Medtronic Trading Cheaper Than Industry, S&P
If we look at the value components, MDT has a Value Score of B at present.
This is evident from the Price/Earnings ratio. MDT shares currently trade at 15.97X forward earnings, well off its five-year high of 30.08X and below the median of 17.11X. The stock is also trading significantly below the industry’s 21.82X and S&P 500’s 21.85X.
The company is also trading at a significant discount to other industry players like Boston Scientific, with its current P/E being 32.25, and Abbott, whose current P/E is 23.04X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.
Image Source: Zacks Investment Research
To Conclude
While Medtronic holds immense potential for long-term growth, given its momentum, ongoing comprehensive transformation, breakthrough innovations and exposure to strong secular growth markets, the company battles significant headwinds from macroeconomic issues and rising expenses, which can significantly dent its bottom-line growth. For now, it might be prudent for investors to avoid buying the stock and monitor MDT’s upcoming results for a better entry point.
Image: Bigstock
Medtronic Stock Trading at a Discount Before Q2 Earnings: Time to Buy?
Medtronic plc (MDT - Free Report) is scheduled to report second-quarter fiscal 2025 results on Nov. 19, before the opening bell.
In the last reported quarter, the company’s adjusted earnings of $1.23 exceeded the Zacks Consensus Estimate by 2.5%. Medtronic beat estimates in each of the trailing four quarters, the average surprise being 3.07%.
The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $8.26 billion, suggesting growth of 3.5% year over year. The consensus estimate for second-quarter earnings is pegged at $1.24 per share, indicating a 0.8% decline on a year-over-year basis.
Q2 Estimates for MDT Move South in 3 Months
Earnings estimates for Medtronic have dropped 11.1% to $1.24 per share for the fiscal second quarter over the past 90 days.
Despite the company registering earnings beat over the trailing four quarters, estimates have been southbound, reflecting the global geopolitical pressure through the months of the fiscal second quarter, primarily due to the tension around the Middle East, with a rise in oil prices during that time. This apart, the company’s recent voluntary recall, notifying Medtronic MiniMed 600 series or 700 series insulin pump users of potential risks of shortened pump battery life, added to investors’ concerns.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Let’s look at how things have shaped up for Medtronic before the announcement.
Factors to Focus on Ahead of MDT's Q2 Earnings
Since the past several quarters, Medtronic’s earnings growth has been held back by headwinds like cost escalation and currency impacts. Although inflation stabilized a bit during the fiscal first quarter, it is still higher than the historical trend. The continued rise in raw material and labor costs, as well as oil price volatility, has been denting the company’s profit. Further, a rising interest rate leading to increasing borrowing costs is concerning. In the first quarter of fiscal 2025, the company-adjusted gross margin was down 50 basis points due to an 80-basis point adverse impact of currency. Company-adjusted operating margin also declined 40 basis points year over year due to supply issues and labor shortages.
Like its peers, the impact of the present geopolitical situation, including sanctions and other measures being imposed in response to the Russia-Ukraine conflict, as well as the battle around the Red Sea may have curbed fiscal second-quarter profits too.
Added to this, unfavorable currency movements are once again likely to have acted as a major dampener during the fiscal second quarter, as in the case of other important MedTech players too. Medtronic expects its fiscal 2025 second-quarter revenues to reflect an unfavorable impact of $10 million to $60 million from currency translation.
Further, the earlier-mentioned product recall within the Diabetes business too might have partly impacted sales in the fiscal second quarter.
Despite these challenges, Medtronic has consistently showcased the resilience of its underlying business fundamentals, delivering mid-single-digit organic revenue growth for several quarters in a row. While its recent product launches have been driving growth across multiple businesses, a swift pace of several compelling product approvals promises consistent growth in the years to come.
Particularly, the company’s AFib, Structural Heart, robotics, neuromodulation, hypertension and diabetes businesses are expected to have registered growth in the to-be-reported quarter, banking on several new product launches. Within the company’s Established Market Leaders category, the company might have witnessed growth in the Cranial & Spinal Technologies segment on the increasing adoption of AiBLE, Medtronic’s spine technology ecosystem. Further, Mazor Robotics, StealthStation navigation, O-arm Imaging and Midas Rex powered surgical instruments are expected to have witnessed growth.
In Cardiac Pacing Therapies, the Micra leadless pacemaker franchise is expected to have recorded strong growth, driven by the adoption of its latest generation, Micra AV2 and VR2. In Defibrillation Solutions, the Aurora EV-ICD’s adoption is expected to have remained strong in the fiscal second quarter.
The Zacks Consensus Estimate for MDT’s overall Cardiovascular business revenues in the second quarter of fiscal 2025 indicates a 4.1% year-over-year improvement.
Among the company’s Synergistic businesses, Medtronic is expected to report strong growth within Neuromodulation segment. Pelvic Health, Coronary and Peripheral Vascular too are expected to have registered growth in the second quarter.
Among Medtronic’s Highest Growth Markets businesses, the company is likely to have gained traction within the Cardiac Ablation Solutions arm, driven by the strong sales of Pulse Field ablation products, which are more than offsetting declines in the cryo product line.
Medtronic’s Diabetes unit recorded strong growth in the United States in the fiscal first quarter, with the global adoption of the MiniMed 780G AID system driving performance. Despite issues related to battery life of MiniMed 600 and 700 series, the company might have witnessed a positive top-line contribution in the fiscal second quarter from this business.
The Zacks Consensus Estimate for MDT’s Diabetes arm revenues indicates an improvement of 7.5% year over year in the second quarter of fiscal 2025.
What Does Our Model Say?
Our proven model does not conclusively predict an earnings beat for Medtronic this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that’s not the case here.
MDT has an Earnings ESP of 0.00% and carries a Zacks Rank of 3 currently. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Bigger Picture
In recent years, the company has made some foundational changes to the organization, including streamlining the operating model, improving global operations, supply chain and quality, and bringing in expertise from outside the industry. It is actively allocating capital to fast-growth MedTech markets and fueling innovative technologies in areas like robotics, AI and closed-loop systems that ensure its growth over the next decade.
Medtronic’s revenues have improved and become more durable from implementing a performance-driven culture and changing incentives underlying the new product approvals in major markets. With top priority placed on restoring the company’s earnings power, these actions are expected to eventually result in better-leveraged earnings growth through margin stabilization and improvement.
Medtronic’s highest growth opportunities, comprising 20% of its revenues, are in markets that are large and growing faster than the overall company. For example, in Cardiac Ablation, it has significantly invested in the Electrophysiology arm to expand its share in the attractive $8 billion-plus market.
MDT's Impressive Liquidity and Solvency Position
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $27.87 billion as of July 26, 2024. The company’s cash and cash equivalents were $7.8 billion at the end of the first quarter of fiscal 2025.
Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.55 billion remains lower than the short-term cash level. The company’s times interest earned ratio is also at an impressive level of 7.7, indicating that Medtronic is well capable of paying the interest on its business debts on time.
Medtronic Shares Outperform Industry and S&P
In the fiscal second quarter, Medtronic stock gained 15.2% compared with the industry’s 8.9% growth and the S&P 500’s rise of 6.2%. The company also outperformed its direct peers like Abbott’s (ABT - Free Report) 8.5% rise and Boston Scientific’s (BSX - Free Report) 13% rise during this time span.
Fiscal Q2 Price Comparison
Image Source: Zacks Investment Research
Medtronic Trading Cheaper Than Industry, S&P
If we look at the value components, MDT has a Value Score of B at present.
This is evident from the Price/Earnings ratio. MDT shares currently trade at 15.97X forward earnings, well off its five-year high of 30.08X and below the median of 17.11X. The stock is also trading significantly below the industry’s 21.82X and S&P 500’s 21.85X.
The company is also trading at a significant discount to other industry players like Boston Scientific, with its current P/E being 32.25, and Abbott, whose current P/E is 23.04X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.
Image Source: Zacks Investment Research
To Conclude
While Medtronic holds immense potential for long-term growth, given its momentum, ongoing comprehensive transformation, breakthrough innovations and exposure to strong secular growth markets, the company battles significant headwinds from macroeconomic issues and rising expenses, which can significantly dent its bottom-line growth. For now, it might be prudent for investors to avoid buying the stock and monitor MDT’s upcoming results for a better entry point.
You can see the complete list of today’s Zacks Rank #1 stocks here.